Mexico’s energy policy is bad for the country—and the planet

In 2023 Mexico’s energy policies will look increasingly out of step with those in the rest of the world. Since coming to power in 2018 President Andrés Manuel López Obrador—whose home state, Tabasco, prospered from its oil reserves during the 1970s and 1980s—has sought to unwind the energy reforms of 2014 that opened up Mexico’s market. He has prioritised state-owned companies as drivers of growth, and reckons that the country should produce its own energy, rather than importing it. His policies and laws, many of which are being paralysed by court injunctions, will continue to be directed to those ends—whatever the cost.

The government has already spent billions of dollars building a new refinery and has decided to keep coal-fired power stations running. It has also bolstered the state-owned electricity and oil companies by giving them priority over private firms. Having co-opted the industry’s regulatory agencies, the government has hampered the processes through which private companies apply for permits, making it harder for them to generate electricity or explore for oil. Mexico currently exports crude oil and imports natural gas. Now the plan is that the oil will be kept and used to generate the country’s electricity.

The conflict in Ukraine has prompted a global shift towards energy self-sufficiency. But it is unclear that Mexico has the capacity to produce enough electricity. Power is also likely to become more expensive. Operating costs at cfe, the state electricity provider, are significantly higher than at private providers. Its old and inefficient plants are expensive to maintain. Those costs will have to be passed on to the consumer, either directly or by the government having to foot a larger bill in subsidies.

The environment will also suffer. cfe does produce some electricity from renewable sources, especially hydro-electric power. But the government has little interest in wind or solar power. Mexico will see less investment in renewables because of the squeeze on private companies, domestic and foreign, that did much of the investing. The change means Mexico is unlikely to meet its pledge to produce 35% of electricity from clean sources by 2024.

The impact of the policy may be felt in the economy more broadly. Energy reforms helped bring manufacturers to Mexico by making power cheaper and more reliable. Now the uncertainty is deterring investors. The policies have been challenged in the domestic courts. They are causing a regional ruckus, too. The United States and Canada have brought an action alleging that the policies have disadvantaged their companies, in breach of the tripartite usmca free-trade deal. This is likely to be resolved in 2023; Mexico could face sanctions if it loses the case.

The opportunity cost is huge. Experts reckon that Mexico could produce almost half its electricity from renewable sources long before its target of 2050. Companies serving the American market are looking at Mexico as an alternative location to China, after the supply-chain problems that arose during the pandemic. But thanks to Mexico’s backward-looking energy policy, in 2023 those companies are likely to go elsewhere instead.■